TFM

Lecture

By: Faisal Dhedhi

 Organizing a Business
SOLE PROPRIETOR: Sole owner of a business which has no partners and
no shareholders. The proprietor is personally liable for all the firm’s
obligations.
PARTNERSHIP: Business owned by two or more persons who are
personally responsible for all its liabilities.
Limited Partner: Member of a limited partnership not personally liable for the
debts of the partnership.
General Partner: Member of a partnership with unlimited liability for the
debts of the parternship.
CORPORATION: Business owned by stockholders who are not personally
liable for the business’s liabilities.
LIMITED LIABILITY: The owners of the corporation are not personally
responsible for its obligations.
To summarize, the corporation is a distinct, permanent legal entity. Its
advantages are limited liability and the ease with which ownership and
management can be separated. These advantages are especially
important for large firms. The disadvantage of corporate organization
is double taxation.
 Hybrid form of Business Organization
Businesses do not always fit into these neat categories. Some
are hybrids of the three basic types: proprietorships,
partnerships, and corporations. In many states a firm can also
be set up as a limited liability partnership (LLP) or, equivalently,
a limited liability company (LLC). These are partnerships in
which all partners have limited liability. This form of
business organization combines the tax ad-vantage
of partnership with the limited liability advantage of
incorporation. However, it still does not suit the
largest firms, for which widespread share ownership
and separation of ownership and management are
essential. Another variation on the theme is the
professional corporation (PC), which is commonly
used by doctors, lawyers, and accountants. In this
case, the business has limited liability, but the
professionals can still be sued personally for
malpractice, even if the malpractice occurs in their
role as employees of the corporation.
Self-Test 1:
Which form of business organization might best suit the following?
a) A consulting firm with several senior consultants and support staff.
b) A house painting company owned and operated by a college student
who hires some friends for occasional help.
c) A paper goods company with sales of $100 million and 2,000
employees.
Characteristics of Business Organization:
The Role of Financial manager:

REAL ASSETS: Assets used to produce goods and services.

FINANCIAL ASSETS: Claims to the income generated by real
assets. Also called securities.
FINANCIAL MARKETS: Markets in which financial assets are
traded.
The flow chart suggests that the financial manager faces
two basic problems. First, how much money should the
firm invest, and what specific assets should the firm in-
vest in? This is the firm’s investment, or capital budgeting,
decision. Second, how should the cash required for an
investment be raised? This is the financing decision.
CAPITAL BUDGETINGDECISION: Decision as to which real assets the
firm should acquire.
FINANCING DECISION: Decision as to how to raise the money to pay
for investments in real assets.
CAPITAL STRUCTURE: Firm’s mix of long-term financing.
CAPITAL MARKETS: Markets for long-term financing.
Self-Test 2: Are the following capital budgeting or financing
decisions?
a) Intel decides to spend $500 million to develop a new
microprocessor.
b) Volkswagen decides to raise 350 million euros through a
bank loan.
c) Exxon constructs a pipeline to bring natural gas on
shore from the Gulf of Mexico.
d) Pierre Lapin sells shares to finance expansion of his
newly formed securities trading firm.
e) Novartis buys a license to produce and sell a new drug
developed by a biotech company.
f) Merck issues new shares to help pay for the purchase of
Medco, a pharmaceutical distribution company.
Financial Institutions:
Most firms are too small to raise funds by selling stocks or bonds
directly to investors. When these companies need to raise funds to
help pay for a capital investment, the only choice is to borrow money
from a financial intermediary like a bank or insurance company. The
financial intermediary, in turn, raises funds, often in small amounts,
from individual households. For example, a bank raises funds when
customers deposit money into their bank accounts. The bank can then
lend this money to borrowers. The bank saves borrowers and lenders
from finding and negotiating with each other directly. For example, a
firm that wishes to borrow $2.5 million could in principle try to arrange
loans from many individuals: However, it is far more convenient and
efficient for a bank, which has ongoing relations with thousands of
depositors, to raise the funds from them, and then lend the money to
the company
Financial Markets:
As firms grow, their need for capital can expand dramatically. At
some point, the firm may find that “cutting out the middle-man”
and raising funds directly from investors is advantageous. At this
point, it is ready to sell new financial assets, such as shares of
stock, to the public. The first time the firm sells shares to the
general public is called the initial public offering, or IPO. The
corporation, which until now was privately owned, is said to “go
public.”
PRIMARY MARKET: Market for the sale of new securities by
corporations.
SECONDARY MARKET: Market in which already issued securities
are traded among investors.
There is also a thriving over the- counter (OTC) market in securities.
The over-the-counter market is not a centralized exchange like
the NYSE but a network of security dealers who use an electronic
system known as NASDAQ6 to quote prices at which they will
buy and sell shares. While shares of stock may be traded either
on exchanges or over-the-counter, almost all corporate debt is
traded over-the-counter, if it is traded at all. United States
government debt is also traded over-the-counter.
 Who is the Financial Manager?

The treasurer is usually the person most directly responsible for looking after
the firm’s cash, raising new capital, and maintaining relationships with banks
and other investors who hold the firm’s securities.
Larger corporations usually also have a controller, who prepares the financial
statements, manages the firm’s internal accounting, and looks after its tax
affairs.
The largest firms usually appoint a chief financial officer (CFO) to oversee
both the treasurer’s and the controller’s work. The CFO is deeply involved in
financial policymaking and corporate planning. Often he or she will have
general responsibilities beyond strictly financial issues.
Goals of the Corporation:
SHAREHOLDERS WANT MANAGERS TO MAXIMIZE MARKET
VALUE: A smart and effective financial manager makes decisions which
increase the current value of the company’s shares and the wealth of its
stockholders. That increased wealth can then be put to whatever
purposes the shareholders want. They can give their money to charity or
spend it in glitzy night clubs; they can save it or spend it now. Whatever
their personal tastes or objectives, they can all do more when their
shares are worthmore.
profit maximization is not a well-defined corporate objective. Here are
three reasons:
1. “Maximizing profits” leaves open the question of “which year’s profits?”
The company may be able to increase current profits by cutting back on
maintenance or staff training, but shareholders may not welcome this if
profits are damaged in future years.
2. A company may be able to increase future profits by cutting this year’s
dividend and investing the freed-up cash in the firm. That is not in the
shareholders’ best interest if the company earns only a very low rate of
return on the extra investment.
3. Different accountants may calculate profits in different ways. So you may
find that a decision that improves profits using one set of accounting
rules may reduce them using another.
 The Accounting Cycle

Journal
Entry

Financial Ledger Posting

Statements
Accounting
Cycle
Adjusted Trial Trial
Balance Balance

Periodical
Adjustments
 Business Environment, Accounting and Financial Statements

Business Environment Business Strategy

Labor Markets Scope of Business:
Business
Capital Markets • Degree of Diversification
Activities
Product Markets: • Type of Diversification
Operating
• Suppliers Competitive Positioning:
Investment
• Customers • Cost Leadership
Financing
• Competitors • Differentiation
Business Regulations Key Success Factors &
Risks
Accounting Environment Accounting
Capital Market Structure System Accounting Strategy
Contracting & Governance Measure & Report Choice of:
Accounting Conventions & Economic • Accounting Policies
Regulations Consequences of • Accounting Estimates
Tax & Financial Accounting Business
• Reporting Formats
Linkage Activities
• Supplementary
Independent Auditing Disclosures
Legal System for
Accounting Disputes
Financial
Statements
 A bond indenture is the contract between a bondholder and the issuer. It is a
legal document that states what the issuer can and cannot do, and states
the bondholders rights. Since there tends to be a ton of legalese involved,
the contract is managed by the corporate trustee who polices the actions of
the issuer to ensure the rights of the bondholder are upheld.
Within the indenture, there are affirmative and negative covenants: 
• Affirmative Covenants
Affirmative covenants are what the issuer promises to do for the investor.
These promises include things such as paying interest and principle in a   
timely manner; paying taxes and other expenses when due; maintaining the
assets backing the bond and issuing reports to the trustee to
ensure compliance.
 
• Negative Covenants
Negative convents are the restraints put on a borrower. These restraints
include issuing additional securities or taking on additional debt that may
harm the current bondholders. This is generally done without meeting
certain tests and/or ratios or receiving permission from the current
bondholders.
Basic Features of Bonds
Governments and corporations borrow money by selling bonds to investors.
Security that obligates the issuer to make specified payments to the
bondholder.
1.Maturity
2.Par Value
3.Coupon Rate
4.Redemption
5.Currency Denomination
6.Options Granted to the Issuer or Investors 

1 Maturity
Maturity is the time at which the bond matures and the holder receives the final
payment of principal and interest. The “term to maturity” is the amount of time until
the bond actually matures. 

There are 3 basic classes of maturity:

A. Short-Term Maturity – One to five years in length
B.Intermediate-Term Maturity – Five to twelve years in length
C. Long-Term Maturity – Twelve years or more in length 

2.Par Value
Par value is the dollar amount the holder will receive at the bond's maturity. It can
be any amount but is typically $1,000 per bond. Par value is also known as
principle, face, maturity or redemption value. Bond prices are quoted as a
percentage of par.
Example: Premiums and Discounts
Imagine that par for ABC Corp. is $1000, which would =100. If the ABC
Corp. bonds trade at 85 what would the dollar value of the bond be? What if
ABC Corp. bonds at 102?
Answer:
At 85, the ABC Corp. bonds would trade at a discount to par at $850. If ABC
Corp. bonds at 102, the bonds would trade at a premium of $1,020.
3.Coupon Rate
A coupon rate states the interest rate the bond will pay the holders each
year. To find the coupon's dollar value, simply multiply the coupon rate by
the par value. The rate is for one year and payments are usually made on a
semi-annual basis. Some asset-backed securities pay monthly, while many
international securities pay only annually. The coupon rate also affects a
bond's price. Typically, the higher the rate, the less price sensitivity for the
bond price because of interest rate movements.

4.Currency Denomination
Currency denomination indicates what currency the interest and principle will
be paid in. 

Other currency denomination structures can use various types of currencies

to make payments.
Because the provisions for redeeming bonds and options that are granted to
the issuer or investor are more complicated topics, we will discuss them later
in this LOS section.
Example: Bond Table
Let's take a look at an example of a bond with the features we've discussed
so far, within a bond table format you'd see in a paper. 
ABC Corp 7.00% 6/1/10 at 90.
 The issuer is ABC Corp.
The maturity is 2010 with a term to maturity of roughly 5 years.
Par value is 1,000 per bond or 100
Coupon rate is 7%.
Coupon Payment is $70 per year (coupon=coupon rate* par value = .07
*$1,000 = $70
Trading Price in dollars is $90
ABC Corp is a U.S. company and all payments of interest ant principle are
in USD.

Zero-Coupon Bonds - These instruments pay no interest to the holder and are
issued at a deep discount. As the bond nears maturity, its price increases
to reach par value. At maturity, the bondholder will receive the par
price. The interest earned is the difference between the purchase price of
the bond and what the holders receives at maturity.
Floating-Rate Bonds - These bonds have coupon rates that reset at
predetermined times. The rate is usually based on an index or benchmark
with some sort of spread added or subtracted to the benchmark.
 Example: Floating Rate Security: Federal Funds
Assume the coupon rate of a floating-rate bond is based on the Federal Funds
rate plus 25 basis points at three-month intervals. If the Federal Funds are at
3%, what would the coupon rate for this bond be?
Coupon rate = Reference Rate + influencing variable.
Answer: 
Coupon rate = 3% (Fed Funds) + 25 basis points.
Coupon rate = 3.25%
The coupon rate for this bond would be 3.25% until the next reset
date. Floating- rate securities come in many forms. Other forms of floating-
rate securities involve caps and floors; these are discussed in detail below.
Caps and Floors
Some floating-rate securities have restrictions placed on how high or how low
the coupon rate can become.
          Even though the formula states a 4% coupon should be paid this period,
the    cap holds the coupon at 3.90%. 
          Example: Floors
          Now lets add a floor of 2% and assume that Fed Funds are trading at
1.50%         
         Answer: Coupon rate = 1.50% (Fed Funds) + 25 basis points
          Coupon rate = 1.75
   Even though the formula states a 1.75% coupon should be paid, there is a 2% floor
in place, which means that the investor will receive 2% instead of the 1.75%
derived from the formula.
Accrued Interest and Price Terminology
• Accrued interest - the amount of interest that builds up in between coupon
payments that will be received by the buyer of the bond when a sale occurs
between these coupon payments, even though the seller of the bonds earned
it.
• Full Price - is sometimes referred to as a bond's dirty price, which is the
amount the buyer will pay the seller. It equals the negotiated price of the bond
plus the accrued interest. 
• Clean Price - is simply the price of the bond without the accrued interest
Typical Yield measures:
There are three sources of return an investor can expect to receive by investing
in bonds:
• The coupon payment made by the issuer.
• Any Capital gain or Loss when the bond matures or sold.
• Income from the reinvestment.
1.     Current Yield
Current yield relates the annual dollar coupon interest to the bond's market
price:
Current Yield = annual dollar coupon interest / price
Example: Current Yield
IBM ten-year bond with a rate of 5% and market price of 98.
Answer:
Step1 - Figure out the annual dollar coupon interest= .05 * $100 = 5$
Current Yield = $5 / 98 = .05102= 5.1%
Current yield is greater when bond is selling at a discount. The opposite is
true for a premium bond.  If a bond is selling at par, the current yield will
equal the coupon rate. 
The drawback using current yield is that it only considers the coupon
interest and nothing else.
2.Yield to Maturity (YTM)
Yield to maturity is the most popular measure of yield in the market. It isthe
rate that will make the present value of a bond's cash flows equal toits
market price plus accrued interest. To find YTM, one has to develop the
cash flows and then, through trial and error, find the interest rate thatmakes
the present value of cash flow equal to the market price plus accrued
interest.
This is basically a special type of internal rate of return (IRR).
• Bond Price, Coupon Rate, Current Yield and Yield to Maturity 
For a bond selling at par:
Coupon Rate = Current Yield = Yield to Maturity
• For a bond selling at a discount:
Coupon Rate < Current Yield < Yield to Maturity
• For a bond selling at a premium:
Coupon Rate > Current Yield > Yield to Maturity
•
The limitations of the yield to maturity measure are that it assumes that the
coupon rate will be reinvested at an interest rate equal to the YTM. Besides
that it does take into consideration the coupon income and capital gains or
loss as well as the timing of the cash flows.
Problems on YTM using hit and trial method:
1) A $ 1000 par value bond, current market price of the bond is $ 761,
12 years remaining till maturity, coupon rate is 8%, using hit and
trial method calculate YTM?
2) A 10 year bond, 5years remaining till maturity and the market price
of the bond is $ 650 whose par is at $ 1000. If Coupon rate is 6%,
calculate YTM using interpolation.
3.Yield to First Call
Yield to first call is computed for a callable bond that is not currently
callable. The actual calculation is the same as the Yield to Maturity with the
only difference being that instead of using a par value and the stated maturity,
the analyst will use the call price and the first call date in calculating the yield.
4.Yield to First Par Call
Again, yield to first par call is the same procedure as above, with
the difference being that the maturity date that will be used instead of the
stated maturity date is the first time the issuer can call the bonds at par value
5.Yield to Put
Yield to put is the yield to the first put date. It is calculated the same way as
YTM but instead of the stated maturity of the bond, one uses the first put
date.
Options that Benefit the Issuer.
Call options - allows the issuer to call the bonds prior to maturity if prevailing
rates decrease enough to make it economically feasible for the issuer to
replace the existing issue (consisting of higher rate coupons) with lower
coupon bonds.
Options that Benefit the Holder
Puts - This option is the exact opposite of a call. It allows the bondholder to
sell the bond or "put" the bond back to the issuer at a certain price and
date(s) before its maturity. As rates rise, this helps the bondholders dump
their holdings and reinvest their proceeds at a higher rate.
Provisions for Redeeming Bonds:
The provisions for redeeming bonds are found in the indenture.  
They can be: 
1.Called
2.Refunded
3.Have Prepayment Options and/or
4.Sinking Fund Provisions 
1.Call Redemption
By adding a call feature in the indenture, a bond becomes a callable
bond. A callable bond gives the issuer the right to redeem the bonds on a
stated date or a schedule of dates before the stated maturity date for the
bonds arrives. 
Let's look at callable bonds in a little more detail. First, some terminology: 
• Call Price - This is the price that the issuer will pay the bondholder; also
know as the redemption price. 
• Call Date - This is the date or dates that the issuer can call the bond from
the holders. 
• Deferred Call - When a callable bond is originally issued, it is said to have
a deferred call of so many years up to the first call date, which is the first
day the bond can be called by the issuer. 
2) Refunding
The refunding of an issue is the replacement of a current high coupon rate
bond. This is done by issuing newer bonds at a lower coupon rate. With regards to
a callable issue, refunding offers little protection to a holder. At least with a callable
bond the holder has a date on which the call will occur. The refunding could occur
as soon as it becomes advantageous to the issuer to replace older, higher rate
bonds.
3) Prepayments
This form of redemption occurs in ABS and MBS securities. In this instance the
investor could receive additional principal payments before the maturity date. For
example, a homeowner with a mortgage payment of $500 a month could pay more
than that amount, say $700 a month. This additional $200 would constitute a
prepayment of principal. If this were to happen in the payment of a bond, the bond
would be redeemed before maturity.
4)Sinking Fund Provisions
This helps redeem and retire bonds. It requires an issuer to retire or pay for the
retirement of a specific portion of the issue at certain times. This helps reduce
credit risk by having something in the "kitty" each year as a protection against a
default. It can be structured to retire the entire issue at its maturity date or only a
portion of the balance of the issue. If provision is only for a balance of the issue,
the final payment is paid by a balloon payment.
Bond price valuation:
Bond prices are usually expressed as a percentage of their face value. Thus we
can
say that our 6 percent Treasury bond is worth 101.077 percent of face value, and
its
price would usually be quoted as 101.077, or about 101 232.
Did you notice that the coupon payments on the bond are an
annuity? In other words, the holder of our 6 percent Treasury bond
receives a level stream of coupon payments of $60 a year for each
of 3 years. At maturity the bondholder gets an additional payment
of $1,000. Therefore, you can use the annuity formula to value the
coupon payments and then add on the present value of the final
payment of face value:
PV = PV (coupons) + PV (face value)
= (coupon annuity factor) + (face value discount factor)
Problem:
Calculate the present value of a 6-year bond with a 9 percent
coupon. The interest rate is 12 percent?
FIGURE
Cash flows to an investor in
the 6 percent coupon bond
maturing in 2002. The bond
pays semiannual coupons, so
there are two payments of
$30 each year.
Yield to Maturity (YTM): Interest rate for which the present value of the bond’s
payment equals the price. The yield to maturity is defined as the
discount rate that makes the present value of the bond’s payments
equal to its price. Price The value of the 6 percent bond is lower at higher
discount rates. The yield to maturity is the discount rate at which price
equals present value of cash flows.
Institutional Investors and Financing Purchases:
Institutional investors tend to finance their purchases in two ways instead of
purchasing securities outright. They are: 
• Buying on Margin - In this form of financing the buyer borrows funds from a
broker/dealer who in turn gets the cash from a bank. The institution is charged
an interest rate plus some additional charges.
• Repurchase Agreements - These are collateralized loans in which the
institution sells a security with the commitment to purchase the same security
at a later date. The length of time could be as short as overnight or extend all
the way to the maturity of the security. The price that is agreed upon is the
repurchase price and the institution is charged a repo rate. The repo rate is
an implied interest rate, which is the cost that the institution incurs for funding
the position. Its benefit is that it is a very cheap way to finance a position
because the repo rate tends to be set around the Federal Funds rate.
Risk associated with investing in Bonds:
• Call and Prepayment Risk
Call and prepayment risk is concerned with the holders having their bonds paid off
earlier than the maturity date. This is due to decreasing marker rates, which cause
the issuer to call the bonds. It can also occur when the borrowers in a MBS or ABS
refinance or pay off their debt earlier than the stated maturity date .
Disadvantages of Investing in Bonds that are Callable or Prepayable
1.It is difficult to develop and forecast the cash flows for the security because of the
possible early redemption of the bond.
2. The reinvestment risk is another disadvantage. As rates decrease and bond are
called or prepaid, investors will not be able to invest their proceeds at the old rates
and will have to use new, lower market rates to put their cash to work.
3.Price compression is the final disadvantage for investors. When rates decline there
is a greater chance that the issuer will call the bonds. This compresses or holds the
bond at its call price while bonds without this option will continue to increase in
market value as rates continue to decrease.
• Zero coupon bonds have no reinvestment risk because there are no coupon
payments made to the investor. Because of the lower coupon rate, however,
zeros expose the investor to a higher interest rate risk.
• Credit Risk:
– Default Risk - Default risk is the risk that the issuer will go belly up and not be able
to pay its obligations of interest and principle. To help measure this risk, an investor
can look at default rates. A default rate is the percentage of a population of bonds
that are expected to default. Another ratio that an investor can look at is the
recovery rate. This rate indicates how much and investor can expect to get back if
a default occurs.

– Credit Spread Risk- This second type of credit risk deals with how the spread of
an issue over the treasury curve will react. For example, Ford five-year bonds may
trade at 50 basis points above the current five-year treasury. If the five-year bond is
trading at 3.5%, then the Ford bonds are trading at a yield of 4%. If this spread of
50 bps widens out compared to other bond issues, it would mean that the Ford
bonds are not performing as well as the other bonds in the marketplace. Spreads
tend to widen in poor performing economies.
– Downgrade Risk -The third type of credit risk deals with the rating
agencies. These agencies, such as Moody's, S&P and Fitch, give an issuer a rating
or grade that indicates the possibility of default. On the more secure side, the
ratings range from AAA, which is the best rating to AA, A, BBB. These are the
ratings for investment-grade bonds. Once bonds dip into the BB, B, CCC ranges
they become junk bonds or, in politically correct language, high yield securities. If
one of these rating agencies downgrades a company's rating, it may be harder for
the corporation to pay. This will typically cause its marker value to decrease. That
is what this risk is all about.
• Liquidity Risk:
– Liquidity refers to how deep or liquid the market is for a particular security. If the market
is deep, an investor can purchase or sell a security at current prices. If the market is not
liquid, it is harder to sell or buy a security at the last market price.

– Liquidity is typically measured by the bid/ask spread. If the spread is wide, the market is
illiquid. If the spread is narrow, the market is more liquid.
– Liquidity risk is important because it tells you how easily you can get rid of a position if
you need to close it near the last market price.

– This is even more important if you plan to hold a security to maturity because of the
marking to market of your positions. In an illiquid market, it may be hard to obtain
quotes, and when you revalue the security it could be well below market prices, affecting
the reports you send to clients and management.

– This risk also changes over time, so a manager has to keep abreast of this risk. This is
especially true when looking to invest in new complex bond structures.
• Exchange Risk:
Exchange-rate risk is the risk of receiving less in domestic currency when
investing in a bond that is in a different currency denomination than in the
investor's home country.
When investors purchase a bond that is designated in another currency other
than their home countries, investors are opened up to exchange risk. This is
because the payment of interest and principal will be in a foreign
currency. When investors receive that currency, they have to go into the
foreign currency markets and sell it to purchase their home currency. The risk
is that their foreign currency will be devalued compared to the currency of
their home countries and that they will receive less money than they expected
to receive.

As an example, suppose that a U.S. investor purchases a Euro denominated

bond. When the interest payment comes due and if the Euro has declined in
value compared to USD, the investor will receive less in USD than expected
when he or she transacts in the foreign currency markets. In short, the
investor will receive fewer Euros to purchase USD.
• Inflation Risk :
Also known as Purchasing Power Risk, this risk arises from the decline in
value of securities cash flow due to inflation, which is measured in terms of
purchasing power.
Here's how it works:

You buy a bond with a coupon rate of 4%. The inflation rate is at 2%. Even
though you are earning 4% on your money, inflation is chipping 2% of it away
only leaving you with 2% of your money or purchase power, which you can
use when you receive your payments.

Only Inflation Protection Bonds such as TIPS offer protection against this
risk. Floaters help reduce this risk because of the resetting of the interest
rates. All other bonds expose the investor to this risk because the interest rate
is fixed for the life of the bond.
Duration
Duration is an estimated measure of the price sensitivity of a bond to a change in
interest rates. It can be stated as a percentage or in dollar amounts. It can be helpful
to "shock" or analyze what will happen to a bond when market rates increase or
decrease. It can be interpreted as an approximation of the percentage change in the
price security for a 1% change in yield. We can also interpret duration as the ratio of
the percentage change in price to the change in the yield in percent.
Duration = - (percentage change in bond price) / (Yield change in percent)
When calculating the direction of the price change, remember that yields and prices are
inversely related. If you are given a rate decrease, your result should indicate a price
increase. Also note that duration of a zero coupon bond is approximately equal to its
maturity and duration of a floater is equal to the time to the next reset date.
Example:
If a bond has a duration of 5 and the yield increases from 7% to 8%, Calculate the
approximate percentage change in the bond price.
Example:
If a bond has a duration of 7.2 and the yield decreases from 8.3% to 7.9%, Calculate the
approximate percentage change in the bond price?